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Bay partners, invests in NetSpeak

The move highlights a growing trend in the data communications business: using expertise in sending data traffic to tackle the needs of telecommunications firms and service providers.

The race is on.

Hoping to attract converts in the emerging market for voice and fax services based on IP, the dominant information transfer protocol for the Net, networking player Bay Networks (BAY) announced a partnership and investment in voice, video, and data communications software provider NetSpeak (NSPK).

The move highlights a growing trend in the data communications business: using expertise in sending data traffic to tackle the needs of telecommunications firms and service providers.

Researchers expect voice traffic to be eclipsed by data traffic by the year 2000, a startling turn of events for the public network infrastructure that has most carriers scrambling to deal with the changes brought on by the explosion of the Net. Telecommunications deregulation across the globe has also contributed to the discussion of new technologies, like using IP for voice, video, and data.

"Network service providers are going to have to completely revamp their infrastructures," said David Passmore, president of technology consultant Decisys. "Somebody is going to end up making a huge amount of money from these guys as they upgrade to IP telephony."

Use of IP for voice, video, and data functions allows network service providers to offer value-added data and voice services to customers easily since everything is based on the same protocol.

The technology also allows implementers of internal corporate networks to reap significant savings by using their layout for internal phone calls and faxes, or as the initial pipe for voice traffic that is then transferred to the public voice network. Under those scenarios, corporations get more "bang for the buck" out of their expensive networks.

Enter firms such as Bay Networks, Ascend Communications, and Cisco Systems, among others.

Filling in another hole in its IP-based services strategy, Bay executives said they will integrate various NetSpeak technologies over the next year and a half, starting with a voice- and fax-over-IP software gateway for the company's BayStack line of switching hardware for corporate enterprise networks.

The company also said it will invest in $37.6 million worth of NetSpeak stock, about 9 percent of the firm.

Kingpin Cisco just closed a deal for LightSpeed International worth $160 million (See related story) The Virginia-based firm makes voice protocol conversion and intelligent call control software which enables signaling to be transmitted among diverse sets of voice protocols and applications.

"I think this was clearly an area where Bay was behind Cisco and needed to do something in voice-over-IP to stay competitive," Passmore noted. "They had to do this."

Executives from Ascend--which has a significant hold on several service provider accounts--also have said they will soon offer a variety of techniques to meld voice, video, and data services over IP into the company's equipment.

Bay executives are bullish on the prospects. "Voice and fax over IP is a hot topic--everybody's talking about it," said David House, chairman, president, and CEO of Bay. "We think this is a huge opportunity for our customers and a huge market opportunity for Bay Networks."

Steve Pearse, Bay's senior vice president and general manager for its Internet Telecom Business Group, said the company would roll out a carrier-class voice and fax-over-IP gateway for its 5399 remote access hardware chassis in the first half of 1999, along with software tools for the company's BayStack Advanced Remote Node (ARN) routing code.

As part of the deal, Bay will also have the right to purchase additional shares to maintain its percentage ownership in NetSpeak. The investment is subject to the receipt of regulatory approval and certain other conditions, which is expected later this month.

NetSpeak, in its initial public offering last May, floated out 2.4 million shares and raised $21 million in its IPO. Today, the stock fell just over 5 percent by 10:30 a.m. PT to 25-3/4, while Bay's stock lost 7/16 from yesterday's close of 26-1/4.

News.Com Reporter Suzanne Galante contributed to this article.